Facebook and peer-to-peer payments

Facebook’s upcoming move into peer-to-peer payments brings it into a crowded field. The most obvious competitors are Square Cash, PayPal’s Venmo and PayPal itself. There are also competitors on the bank side, including Popmoney and Chase QuickPay.

Clearly Facebook is in a strong position to dominate the space. But with a near universal user base in the United States, that could be said about any space Facebook enters.

Facebook Payments will leverage the Messenger product and let people send money back-and-forth while messaging each other. Instead of using ACH, the system uses debit cards. (Just like Square Cash.)

Some of the big questions are:

  • How much will Facebook promote this product? A product without promotion will easily get lost within Facebook. Many Facebook products have died for lack of promotion.
  • Does this meet with the needs of Facebook users? Even heavily promoted products can fail. Facebook’s Gifts product was promoted all over the site and still failed. Part of this was due to the quality of the product, but it likely wasn’t improved because it didn’t get traction. If they’d fixed the holes — such as lack of personalization — it might have done better.
  • Is person-to-person payments a big market? Obviously remittances and trans-border transactions are, but that’s a completely different problem.
  • Is there a business model here? For P2P itself, it’s unlikely. There are too many free options. It becomes interesting if Facebook moves into person-to-merchant transactions.

Facebook has many mechanisms to promote the product:

  • Initial messaging within Messenger when a user is provisioned for the product.
  • Messaging on the news feed when someone signs up. e.g. “Rocky just signed up for Messenger Money.”
  • Messaging on each transaction, a la Venmo. e.g. “Rocky just paid Stan for dinner.” This will probably turn off a lot of people (e.g. age >30), but seems to be popular with the Venmo crowd. For them, it would be a powerful form of marketing.
  • Indicators in status lists showing that a person can be paid via messenger.
  • Contextual messaging triggered by words in messages like “owe” and “pay.”

Facebook has had promotional successes before. I consider people tagging in photos one of the greatest viral moves ever.

The mobile indicator that showed in the early days of mobile status updates provided a subtle sign that something new was going on. Its presence encouraged others to wonder what was going on and how they can update status from their mobile device.

For as much time as people spend interacting on Facebook — especially about things they did in real life — it makes sense that people would want to pay each other.

If Facebook can get people to use P2P in messenger, it opens up money-making opportunities in commerce. If I can pay for a purchase simply by sending a message, it should encourage me to transact more. And if users are comfortable using their debit cards, Facebook will make a lot of merchants really happy and give the merchants more reasons to promote Facebook.

There are a lot of IFs here, but there’s a good chance that Facebook can make a dent in this market. PayPal’s need to put out a statement about the Messenger payments product is an indication that they’re scared about the social media giant.

redesign | payments: Hiring Stan Chudnovsky shows Facebook might be getting serious about payments

Facebook has frustrated me for a long time: they have such huge reach and engagement that I’ve thought that Facebook should be entering more spaces, rather than just limiting itself to ads on the current product. Facebook has billion dollar opportunities in payments, commerce, television and local, just to name a few.

But Facebook has been laser-focused on mobile. (The last time I interviewed at Facebook, I was told that my ideas were “too big” for Facebook.)

With the hiring of Stan Chudnovsky to work on Messenger (and presumably payments within Messenger) with David Marcus, it shows that the company might finally be looking to diversify beyond the core product. (Stan worked for David at PayPal.)

In much of the developing world, an ad-supported business is unrealistic today. There are a number of reasons for this:

  • Purchasing power. If you make $1 a day, it’s hard to develop an ROI to advertise to you.
  • Lack of audience. Much of the audience still isn’t online. (Though Facebook is working heavily on that.)
  • Lack of infrastructure. Without agencies and similar infrastructure, the complex nature of advertising models is hard to pull off. (Not that a new model can’t be invented — it should — but that takes time.)

Payments is a natural fit for Facebook. People all over the world have to pay. And taking even a penny or two on a transaction could easily dwarf revenue from ads.

Facebook’s best play here is international. In the U.S., there are very well established payment systems. Credit cards are ubiquitous and card networks dominate. It’s a hard market to displace, even at Facebook’s scale. But bring payments into a greenfield opportunity and Facebook has a real chance to dominate.

In the U.S., there are social payment opportunities. Venmo, which David acquired for PayPal, has shown an emerging behavior that has huge potential when paired with the Facebook firehose.

Facebook also has a good team; David and Stan are both entrepreneurs. Working at PayPal was (almost) as odd a fit for them as it was for me. It’ll be interesting to see what they can accomplish when they’re given resources within a company that truly values innovation.

Disclosure: I briefly worked for Stan and David at PayPal, until I decided that PayPal would never be able to move at the pace that I wanted it to.

Facebook experiments with free Wi-Fi, for a price

I talk to APM’s Marketplace about Facebook and free WiFi

Facebook says its experimenting with a few local businesses to “offer a quick and easy way to access free Wi-Fi after checking in on Facebook.”

Rocky Agrawal, a consultant at reDesign mobile, suspects there’s more to this than good will.

“It’s a good way for Facebook to know where you’re at, they can deliver all sorts of new offers,” Agrawal says.

Story and audio.

Local restaurant tries do-it-yourself Groupon

I was checking Twitter today and came across this local restaurant trying a Groupon-like offer on its own:

 

Wildwood in Portland is trying a do-it-yourself Groupon with its Twitter and Facebook followers.
Wildwood in Portland is trying a do-it-yourself Groupon with its Twitter and Facebook followers.

Wildwood is an upscale and top-rated restaurant in Portland. It has 4 stars and 101 reviews on Yelp and 5 “Best Ever” awards on Hotpot.

It has 745 likes on Facebook and 632 followers on Twitter. These are well above the market medians of 398 and 352. (It’s impossible to say what the unduplicated reach is across Facebook and Twitter.)

So how is this different from running a Groupon?

  • More revenue for Wildwood. It gets to keep all of the revenue generated. In a typical Groupon deal, Wildwood would get about $15 for each $50 gift certificate sold. Here, it keeps the entire $30. Given that food costs are typically 30% of a restaurant’s expenses, Groupons are break-even at best just on incremental cost.
  • More restrictions on redemptions. Groupons usually have longer redemption times and fewer restrictions on redemption. They are often valid for a year and can be used at almost any time. These certificates are only valid for dinner on Sunday, Monday and Tuesday and not valid for alcohol. It’s essentially a yield-management play, used to fill seats when the restaurant would otherwise be empty. Some restaurants use OpenTable’s Dining Rewards to accomplish this. These factors combine to increase the restaurant’s profitability on the deal.
  • More qualified customers. The restaurant is essentially reaching people who have already expressed some interest in it. Some of these are undoubtedly existing customers.Groupon brings in a much broader range of customers. That is both a blessing and a curse: some will be potentially new customers who will become repeat visitors; some will just be deal seekers who are unlikely to return. For many businesses, the primary market area is a 5-mile radius. Groupon’s coarse geographic targeting amounts to casting too broad a net for many local businesses.
  • No online purchases. The deal requires that customers visit Wildwood to buy and pick up the gift certificate. This is both good and bad: it means that customers are more qualified because they have to visit twice. They are more likely to live nearby and thus more likely to be repeat customers. But it also serves as a significant deterrent to purchase.
  • Limited viral distribution. Wildwood may reach some new prospects as other retweet/share the link. Twitter accounts like EaterPDX sometimes share such announcements. At the time of this writing, two people had retweeted the offer, for an additional 1,000 potential impressions. But it’s not likely to spread as virally as deals on Groupon and LivingSocial do. Both platforms offer built-in financial incentives for sharing deals with others.

I’ll check in with the business later in the week to see if they’re willing to share the results.

As I wrote earlier, businesses and consumers are directly connecting with each other online. In some ways, you can consider Groupon an arbitrage business — using its skill in marketing and online customer acquisition to deliver traffic to local businesses. (Much like ServiceMagic and 800-DENTIST.) As local businesses get more sophisticated and adopt tools like Facebook and Twitter, this will put margin pressure on Groupon and its peers.

Business and consumer engagement in local search

Part 1: Local search is starting to get more social
Part 2: How the battle for local search will be won
Part 3: Google Hotpot a strong competitor to Yelp
Part 4: Statistics on business and consumer engagement in local search
Part 5: Foursquare 3.0 takes mobile ball to a whole new level

Earlier in this series, I talked about the importance of business and consumer engagement in the success of local search. Here are some statistics based on research I conducted in the Portland market.

Business engagement

Staking out a presence online is the most basic step, and it seems that most businesses are taking this step. With the exception of foursquare, all of these numbers are substantially higher than I expected.

Proportion of businesses using each tool.
Proportion of businesses using each tool.

Web sites

86% of businesses I looked at had a Web site. The quality of the Web sites varied tremendously, but generally included business location, contact information and hours. Some included sample menus. Most weren’t regularly updated. For businesses that had Twitter and Facebook presences, links to those sites were usually provided. A few embedded Twitter feed widgets right on the home page.

The difficulty in updating Web sites (which are often done as one-off projects by design shops) was evidenced by the fact that some still had Christmas promotions up in March. One business owner apologetically encouraged customers to check Twitter and Facebook for updates because “we can update from our cell phones which is huge.”

Claiming presence on Google, Yelp, Facebook and foursquare

“Claiming” a page on local search sites that consumers use provides a number of benefits that vary by site, including the ability to edit your map position, enter information such as hours of operation, post special offers, see metrics about visitors to your page and respond to reader reviews. Perhaps the most important benefit is to keep competitors and malicious users from messing with your page. Claiming is a relatively low-effort activity.

Google and Yelp, two of the leaders in the local search space had equal claim rates. Facebook’s Places product had a claim rate of 10% (not shown on the graph), including one business who claimed the page as I was preparing this report. (I love that she posted this on Facebook and explained Places to a customer in the comments.)

Foursquare lagged with only 5% of businesses claiming their foursquare page.

Twitter

Twitter does not provide a default presence for businesses, yet 55% of businesses I looked at had a Twitter presence. Many of these were regularly updated with information on specials, events, industry news and closings. Several food carts used their Twitter presences in place of Web sites. See my earlier post, Twittering up some dosas. Several businesses had abandoned their Twitter accounts and were not included in the charts.

Facebook

44% of businesses I looked at had a presence on Facebook. “Presence” varied, because Facebook has offered various tools over time and businesses have adopted Facebook in various ways. I’ve linked to examples of each:

  • Profile page – Businesses set themselves as if they were people and were friended as if they were people.
  • Group – Businesses created a group. Customers joined these groups.
  • Page – Businesses created a “Page” which customers could originally “Fan” and now “Like”.
  • Places page – Businesses in theory automatically have a Places page which people can check into. In practice, finding these businesses can be difficult because Facebook’s search tools don’t deliver consistent search results.
  • Combined page – Businesses can merge their Page with their Places page. The combined page is the fullest featured one.

Twitter and Facebook combined

35% of businesses had both a Twitter and Facebook presence. For businesses on both platforms, the median followers was 424 on Facebook and 323 on Twitter. Some of these businesses used tools, such as Facebook’s Twitter sync, to feed the same information to both platforms.

Consumer engagement

Consumers are engaging with local businesses online.

This chart shows the range of followers on Twitter and Facebook. (These numbers are directly comparable.) The chart also shows the number of unique users who had checked into venues on foursquare. The ranges are quite wide: foursquare (1 to 2385), Facebook (9 to 4998) and Twitter (6 to 14027).

There was no clear pattern to the outliers; I expected this to be correlated to the size of the business, but it didn’t seem to be. The outliers also varied by platform.

Distribution of followers and unique users.
Distribution of followers and unique users.

The medians from the above chart are summarized below. I also added the median number of Yelp reviews.

Median consumer engagement.
Median consumer engagement.

Although the numbers may not seem large in the absolute sense, they represent a highly targeted list of consumers who have expressed interest in a business and are likely to be repeat customers.

Checkins

Checkins are still an emerging behavior. Here is the distribution of check ins on foursquare and Facebook:

Distribution of check ins on foursquare and Facebook.
Distribution of check ins on foursquare and Facebook.

The range on foursquare was 1 to 3695; on Facebook, it was 0 to 1587. The medians were 192 for foursquare and 63 for Facebook.

In every case, foursquare checkins were higher than Facebook checkins. Part of this can be attributed to the fact that foursquare has been around longer. Mostly, I’d attribute it to the selection bias of foursquare users and its game mechanics.

The range of checkins per unique user for Facebook was 1 to 4.06. The median ratio (on a venue basis) was 1.56; the median on a user basis is likely lower. Given that many venues require 5 or more checkins to get to mayor, this indicates that checkins are driven by a small proportion of users.

Methodology notes

The above charts are based on a review of 100 local businesses in the Portland area, focused on high consumer value and frequency categories such as restaurants, bars and cafes. National chains were excluded from the sample. The sample included a mix of new and old businesses and businesses that ranged in size from food carts to large restaurants and brewpubs.